Select payroll liabilities and expense accounts
Choose your payroll liabilities and expense accounts, and the bank account you'll pay employees from. This way, we'll automatically sort payroll liabilities and expenses to your chart of accounts for bookkeeping.
About payroll liabilities and expenses
You'll need to select where you record payroll liabilities and expenses in the general ledger. A wages payable account (payroll liabilities) records the amounts owed to employees on your balance sheet. A wages expense account (wages expense) records the gross wages paid to employees on your income statement.
Select payroll accounts
If you don't record liabilities and expenses to the correct accounts, your records will be wrong. Make sure to check Xero's default chart of accounts if you're setting this up yourself. Or, have your accountant check these accounts are correct.
- Go to Settings, then click General Settings.
- Under Features, click Payroll Settings.
- From the Organization tab, select your payroll accounts:
- The bank account you use for employee payments.
- Your organization's wages payable account.
- A default wages expense account (you can use others when you set up earnings types).
- Click Save.